Ministers face a backlash from Labour-run town halls after it emerged deprived inner-city London councils stand to lose millions of pounds under a proposed funding shake-up despite promises to redistribute cash away from wealthy areas.
Central London councils with high levels of poverty and homelessness, including Camden, which includes Keir Starmer’s parliamentary seat, could lose more than 10% of their funding under the proposals, according to the Institute for Fiscal Studies (IFS).
Several economically deprived northern areas, including South Tyneside, Sunderland, Gateshead and Wigan – each of which has high child poverty levels – were also expected to lose out under mooted changes to the English councils’ funding formula.
The IFS said it was “surprised” the government’s proposed funding formula changes were not more strongly geared towards deprivation – and warned that some areas with traditionally high needs associated with poverty would lose millions of pounds.
The thinktank said its analysis showed how changes to the way funding is shared among English councils from next April would have potentially dramatic impacts on individual councils, with big “winners” and “losers” emerging from the process.
The funding formula review consultation was announced by the communities secretary, Angela Rayner, last autumn with a promise the new system would take more account of deprivation to create a “fairer” system that “targets money where it is most needed”.
However, the IFS said it was “surprising” there was not a stronger deprivation effect: “Despite … an expectation that deprived and urban areas would win at the expense of more affluent and rural areas, the government’s baseline funding reform proposals are not particularly redistributive to poor, urban areas of England.”
Councils in the north and Midlands with the highest deprivation scores such as Blackpool, Bradford, Middlesbrough, and Wolverhampton are gainers, while some of the biggest losers are affluent Surrey, Wokingham, and Windsor and Maidenhead.
Overall, about one in four councils would have a real-terms fall in funding over the next three years, with 30 facing cuts of 11-12%, the IFS estimates. At the other end of the scale about 25% of authorities would have funding increases of 12% or more.
Labour-controlled central London boroughs such as Camden, Islington, Wandsworth, and Hammersmith and Fulham could face real-terms cuts in funding of up to 12% over the next three years – possibly reflecting technically lower deprivation scores in recent years as a result of demographic changes and gentrification.
London Councils vigorously challenged the proposals. It was “gravely concerned” about what it called unevidenced plans that had not been properly road-tested and did not reflect the needs of low-income communities in the capital.
Claire Holland, the chair of London Councils, said: “This would have major implications for our most vulnerable groups of residents: London has the highest rate of poverty in the country once housing costs are factored in, and one in 50 Londoners is homeless and living in temporary accommodation.”
It believes the proposed formula underplays London’s extreme housing costs and high levels of overcrowding and fails to capture high levels of poverty and demand for children’s social services. It warned the capital could lose £1.5bn under the children’s services funding formula alone.
In regional terms, the biggest losers under the proposed formula are London (-7%), the south-east (-2%) and the south-west (-1%), according to the IFS. The big regional winners are the East Midlands (+6%) and Yorkshire and the Humber (+4%).
However, there is wide variation at local level, with urban shire districts such as Crawley in West Sussex, Harlow in Essex, and Norwich likely to see real-terms funding increases of 12% or more.
No final decisions on the new funding formula have been taken and there is likely to be intensive horse-trading between councils and Whitehall before the new arrangements are agreed and phased in over three years from April.
A spokesperson for the Ministry of Housing, Communities and Local Government said: “The current, outdated way in which local authorities are funded means the link between funding and need for services has broken down, leaving communities left behind.
“That’s why we are taking decisive action to reform the funding system so we can get councils back on their feet and improve public services, with the IFS recognising that our changes will better align funding with councils’ needs.”